Sunday, February 11, 2007

China--An Uncertain Future

China suffers from a monumental environmental crisis, a crisis in non-performing loans, shoddy construction practices and materials that result in collapsing bridges, highway tunnels, and buildings, etc. At the same time, China's economy is projected to continue its almost 10% per year GDP growth at least until the end of this decade.

Several recent presidents of the US have assumed that by promoting economic modernisation in China, they were also promoting freedom and democracy. That has not been the case, for reasons discussed in this analysis of China's institutional response to massive economic growth.
Certainly, the lack of political progress was not what successive Republican and Democratic administrations promised. In lobbying for continued trade with China, President Bill Clinton predicted in 2000, “We will be unleashing forces no totalitarian operation rooted in last century’s industrial society can control.” President George W. Bush reiterated Clinton’s prediction in 2005: “I believe a whiff of freedom in the marketplace will cause there to be more demand for democracy.” Just how China is to proceed from “a whiff of freedom” to democracy no one knows. Meanwhile, the ccp is determined to show otherwise: It continues to gobble up Western technology, know-how, and capital without relinquishing its monopoly on power.

North American and European approaches to influencing third world authoritarian governments has always been naive. Incisive criticism from Amy Chua, Peter Bauer, Robert Kaplan, Thomas Sowell, Hernando de Soto, Ludwig von Mises, and many others has failed to influence the basic naivete of western governments in their approach to modernising more primitive and authoritarian nations.

Former Hong Kong attorney Gordon Chang has sounded the warning of a coming collapse in China for years now. Chang correctly points out many of the critical problems in China's economic and political infrastructure, which would ordinarily signal the impending collapse--or at least the radical re-structuring--of most nations.

China's government has successfully played the strengths of its human capital against the weaknesses of its organisational infrastructure--by depending upon the wishful thinking and naivete of western governments and business/financial interests. Microsoft felt it was contributing to the liberalisation of China--not to perpetuating the prisoner executions cum human organ factories. Westinghouse thought it was helping democratize China, not promote the brutal suppression of basic freedoms. Google was certain it was opening up the flow of information in China so as to make the citizens freer--not providing the oppressive regime a more powerful tool for spying on more of the people.

Past methods of predicting financial outcomes may not work very well when mega-economies such as that of the US are directly involved. Make no mistake, it is the US economy that is propping up China, just as the US is helping to prop up the EU. As long as US presidents continue to believe that promoting billions of dollars of trade with China is the surest route to changing China from a belligerent regional foe into an ally and friend, China will be able to paint over the inner rot with outer glitz and the appearance of prosperity. Western investors will continue to be thrilled right up to the moment the sandy foundation gives way.

China needs to occupy Taiwan in order to guarantee a free route to the sea for a growing blue water navy. But the moment China attacks Taiwan, it risks the collapse of its economy with the inevitable internal strife that will bring. War with the US over Taiwan would not be nearly as important if not for the fact that trade with the US gives China the cash reserves it craves, and apparent peace with the US reassures investors in other parts of the world that investment in China is safe.

It will not go on forever. China will invade Taiwan, perhaps under cover of a provocation against the US and Japan by North Korea, or a nuclear strike against Israel by Iran. Then all bets are off.

But China will not take the irrevocable step until its Politburo and Supreme Leader determine that China will emerge from the other end of the tunnel as hegemon of Asia. They must believe that the US has served China's purpose long enough as a stupid pack-mule, and that it is now time for China to accept its destiny.

Here is a great video of Gordon Chang and two critics at a Cato Institute gathering. Here is a Gordon Chang article on "the grand wager on China", this is a Ching-tsi Chang article on China's Collapse, and this is an Orville Schell interview on the coming collapse.

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